2017 (12) TMI 1538 - Tri - Companies Law

Scheme of Arrangement by way of Amalgamation - Dispense with convening the meeting of Shareholders and unsecured creditors of the Applicant Transferor Company and of the Applicant Transferee Company. Also Allow the Applicant Companies to make Petition u/s 230, 232 of the Companies Act, 2013 for approval of the Scheme of Amalgamation - Held that - This Tribunal however is not convinced by the representation put forth on behalf of the Petitioners/applicants that in the cases where the relationship between the Transferor and Transferee Company is that of a wholly owned subsidiary and a holding Company and that in the absence of any share exchange contemplated, then meeting should be dispensed with as was done by the Courts earlier under the provisions of Companies Act,1956. It is pertinent to note that under the erstwhile provisions of Companies Act, 1956, provisions which are analogous to Section 233 of the Companies Act, 2013 were not available for the companies to avail of. Hence taking into consideration the facts and circumstances of the case, Courts were permitting dispensation as per exigencies of the situation. The companies involved in the Scheme should not be denied with an opportunity to seek sanction of their Scheme and hence a recourse or fall back has been provided by virtue of sub-Section (14) of Section 233 of the Act. Hence the Applicants/Petitioners have to show the reasons as to what prevents them from approaching the named authority prescribed in Section 233 of the Act for the sanction of the Scheme between companies envisaged thereunder and instead take recourse to this Tribunal for sanction. As seen that no such reasons have been given in the instant application by the companies involved in the Scheme of Merger or Amalgamation. Once the applicant companies elect to approach this Tribunal instead of taking recourse to the provisions of Section 233 of the Act, it consciously subjects itself to the rigors of the provisions of Section 230 to 232 of the Act of 2013 read along with attendant rules framed thereunder. Even though in some instances this Tribunal had dispensed with meetings, however they are far and few and even in the said cases it has been dispensed with in view of they being private limited companies and also closely held having miniscule number of shareholders and consents having been also obtained and produced.

Summary

Issues Involved:
1. Dispensation of meetings for shareholders and unsecured creditors of the Transferor and Transferee Companies.
2. Approval of the Scheme of Amalgamation.
3. Territorial jurisdiction of the Tribunal.
4. Compliance with procedural requirements under Sections 230-232 and Section 233 of the Companies Act, 2013.

Issue-wise Detailed Analysis:

1. Dispensation of Meetings for Shareholders and Unsecured Creditors:

The applicants sought to dispense with convening meetings of shareholders and unsecured creditors for both the Transferor and Transferee Companies. The Tribunal noted that the Transferor Company, Mega Airways Limited, had eight equity shareholders, seven of whom were nominees of the Transferee Company and had given their consents by affidavit. The Transferor Company had no secured or unsecured creditors. Thus, the Tribunal agreed to dispense with the meetings for the Transferor Company.

However, for the Transferee Company, Mega Corporation Limited, which is a listed company with 4752 equity shareholders and 18 unsecured creditors, the Tribunal was not convinced to dispense with the meetings. The Tribunal emphasized that even though the Scheme of Amalgamation was between a holding company and its wholly-owned subsidiary, and no shares were to be allotted, the meetings were necessary for effective corporate governance and information exchange. Therefore, the Tribunal directed that the meetings for the Transferee Company be held, specifying the quorum and appointing a Chairperson and Alternate Chairperson for the meetings.

2. Approval of the Scheme of Amalgamation:

The Tribunal reviewed the Scheme of Amalgamation proposed between the Transferor and Transferee Companies. The Scheme had been unanimously approved by the board of directors of both companies. The Tribunal noted that the Scheme did not involve any corporate debt restructuring and was maintainable under Rule 3(2) of the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016. The Tribunal also noted that the Transferor Company was a wholly-owned subsidiary of the Transferee Company and was not carrying on any business.

3. Territorial Jurisdiction of the Tribunal:

The Tribunal confirmed that it had the necessary territorial jurisdiction to entertain the joint application since the registered offices of both applicant companies were situated within the purview of the Registrar of Companies, NCT, New Delhi.

4. Compliance with Procedural Requirements under Sections 230-232 and Section 233 of the Companies Act, 2013:

The Tribunal discussed the procedural requirements under Sections 230-232 and Section 233 of the Companies Act, 2013. It highlighted that Section 233 provides a less cumbersome and speedier procedure for mergers or amalgamations between small companies or between a holding company and its wholly-owned subsidiary. The Tribunal noted that the applicants had the option to follow the procedure under Section 233 but chose to approach the Tribunal under Sections 230-232. The Tribunal emphasized that if companies choose to approach the Tribunal under Sections 230-232, they must comply with the rigorous procedures prescribed therein.

The Tribunal concluded that the applicants had not provided reasons for not opting for the procedure under Section 233. Therefore, it directed that the meetings for the Transferee Company be held as per the procedures under Sections 230-232, including sending individual notices, publishing advertisements, and allowing voting by various means.

Conclusion:

The application was allowed on the specified terms, directing the meetings for the Transferee Company and dispensing with the meetings for the Transferor Company. The Tribunal emphasized strict compliance with the applicable laws and procedural requirements.